The Federal Reserve’s preferred inflation measure accelerated as expected in July, making it more difficult to justify an aggressive course of rate cuts beyond September’s widely-anticipated move. Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index rising 0.3 percent from the prior month, matching market forecasts as a number of key goods and services categories showed signs of firming price pressures. On a year-over-year basis, core price growth accelerated to 2.9 percent—the fastest since February—underlining an intensification in inflation pressures across the world’s largest economy.

The overall personal consumption expenditures index climbed 0.2 percent relative to the prior month, and was up 2.6 percent from a year ago, missing/overshooting the X-percent consensus estimate. Personal income rose 0.4 percent month-over-month, and inflation-adjusted household spending climbed 0.3 percent—the fastest pace since March—pointing to continued resilience in underlying demand.

Front-end Treasury yields are pushing higher and the dollar is adding to its gains as market participants pull back on bets that the Fed will begin easing policy at an accelerated pace in the months ahead. When taken in combination with recent signs of improvement in purchasing manager indices, measures of private sector job creation, and even second-quarter growth numbers, this morning’s data makes it very difficult to reconcile persistent market expectations for a rapid-fire set of rate cuts from Jerome Powell & Co. with the fundamentals.

Here on the colder side of the 49th, the Canadian economy contracted more than forecast in the second quarter, helping reinforce market bets on more easing from the Bank of Canada. Numbers released by Statistics Canada this morning show real gross domestic product shrinking at a 1.6-percent annualised pace in the three months ended June—close to the Bank’s forecasts, but below market expectations for a -0.7-percent retreat. Annualised exports plunged 27 percent, reversing the first quarter’s front-loaded gains, and business investment tumbled 10.1 percent, but final domestic demand—often a cleaner read of underlying economic conditions—climbed 3.5 percent as household consumption rose at a surprisingly-strong 4.5 percent pace. A preliminary estimate showed real gross domestic product growing 1.1 percent in July, signalling a slightly stronger kickoff to the third quarter.

The Canadian dollar is tumbling as growth expectations diverge relative to the United States, widening rate differentials across the front end of the curve. Traders think Canada’s central bank will deliver one final rate cut in this easing cycle, but there’s considerable uncertainty around its timing, with some—ourselves included—expecting it to come before year end, while others see an early-2026 move as more likely.

Data releases in early September—on both sides of the border—could play a meaningful role in upsetting the current monetary policy consensus, and will carry the potential for unleashing a new round of volatility in currency markets. Take the weekend to relax and recharge. The coming weeks could prove incredibly turbulent.